Airlines report ‘shocking’ plunge in traffic

The airline industry reported on Thursday an “unprecedented and shocking” plunge in global air cargo traffic.

Air freight accounts for 35 per cent of the value of goods traded internationally and the International Air Transport Association said traffic volumes had fallen by 22.6 per cent year-on-year in December.

Giovanni Bisignani, Iata director general, said, “there is no clearer description of the slowdown in world trade. Even in September 2001 (after the 9/11 terrorist attacks in the US), when much of the global fleet was grounded, the decline was only 13.9 per cent.”

“there is no clearer description of the slowdown in world trade,” … oh, wait a minute:

International passenger traffic fell in December by 4.6 per cent. Iata said the drop was less dramatic than in cargo, as volumes had been supported by year-end leisure travel that had been booked in advance.

Airlines are still struggling to reduce capacity to match falling demand, however, and are flying with more empty seats. Capacity was reduced by 1.5 per cent year-on-year in December, resulting in airlines filling only 73.8 per cent of available seats, down from 76.2 per cent a year ago.

“Until this comes into balance, even the sharp fall in fuel prices cannot save the industry from drowning in red ink,” said Mr Bisignani.

British Airways warned earlier this week that it expected to fall into an operating loss of about £150m in the current financial year to the end of March, an announcement made shortly after Air France-KLM, the largest European carrier, disclosed a loss of about €200m in its latest quarter from October to December.

Mr Bisignani said fare levels were also under attack. Premium passenger traffic, the segment in which most network carriers generate the bulk of their profits, had dropped sharply.

The number of premium tickets issued globally fell by 11.5 per cent in November, particularly in response to the turmoil in financial services.

For the full year of 2008, Iata said international air cargo traffic had fallen by four per cent, and passenger volumes rose by 1.6 per cent, a significant slowdown from the growth of 7.4 per cent achieved in 2007.

The sharpest fall in passenger traffic in December occurred in the Asia-Pacific region, where it fell 9.7 per cent year-on-year. European carriers reported a 2.7 per cent fall in demand for international travel and North American carriers a fall of 4.3 per cent.

Mr Bisignani said “2009 is shaping up to be one of the toughest years ever for international aviation. The 22.6 per cent drop in international cargo traffic in December puts us in uncharted territory and the bottom is nowhere in sight.”

Airlines globally incurred a net loss of $5bn last year, and Iata has estimated a further loss of $2.5bn this year based on a forecast crude oil price of $60 a barrel, a 3 per cent fall in passenger volumes and a 5 per cent cent drop in cargo traffic. Aviation industry revenues are forecast to fall this year by $35bn to $501bn.

Airlines are urging governments to relax international regulations to allow global consolidation in what remains a highly fragmented industry. Most countries still allow foreign interests to hold only minority stakes in airlines.

“We don’t want bail-outs, but we need to change the ownership rules,” said Mr Bisignani. “Almost every other business has the freedom to access global capital and the ability to merge across borders, where it makes sense. To manage in this crisis, airlines need the same management tools.”